Tanker Glut Seen Shrinking in Middle East on West Africa Cargoes

By Rob Sheridan -
Nov 9, 2012

The supply of the largest crude
tankers to haul Middle East oil is contracting as the vessels
sail instead to West Africa, where the flow of cargoes is
increasing, ship owner Dynacom Tankers Management Ltd. said.

Seventy-six very large crude carriers are available to load
2 million-barrel cargoes in the Persian Gulf over the next four
weeks, the fewest since Oct. 1, Kevin Sy, a Singapore-based
freight-derivatives broker at the Marex Spectron Group, said by
e-mail today. Ship owners’ earnings jumped more than eightfold
to $5,951 a day, according to the London-based Baltic Exchange.

Some vessels are sailing directly to West Africa and
avoiding the Persian Gulf once they have delivered cargoes to
refineries in Asia, Odysseas Valatsas, chartering manager for
the Athens-based Dynacom, Greece’s second-largest operator of
the tankers, said by e-mail today. Nigeria and Angola will boost
their combined shipments by at least 9 percent next month to
3.98 million barrels a day, the largest amount since August,
according to loading programs compiled by Bloomberg News.

“Winter demand for crude cargoes has kicked in, with more
vessels being booked,” Valatsas said. “VLCCs have taken
cargoes east and, after unloading, returned to West Africa,
further reducing the supply of VLCCs in the Persian Gulf.”

It’s the first time since July owners’ returns have been
positive for three consecutive days. The earnings are still less
than the $10,670 that Moore Stephens LLC estimates the vessels
require to cover crew, insurance and other operating costs.
Rates for the vessels will average $21,000 this year, according
to 14 analyst estimates compiled by Bloomberg.

Three Times Faster

Owners are contending with fleet capacity that expanded
more than three times faster than cargo demand since 2008 after
adding the most new vessels since the start of the 1980s,
according to data from Clarkson Plc (CKN), the world’s largest
shipbroker.

The cost of bunkers, or ship fuel, fell 0.7 percent to
$609.46 a metric ton today, according to data compiled by
Bloomberg. That’s the cheapest fuel costs since July 25, the
data showed. The decline is giving a bigger boost to earnings
than any short-term contraction in ship supply, according to
Arctic Securities ASA, an Oslo-based investment bank.

The Baltic Exchange’s earnings formula doesn’t take into
account the fact ships cut speed to lower fuel consumption.
VLCCs can earn about $11,000 a day by sailing on the empty leg
of journeys at 10 knots, compared with a typical speed of about
13 knots, according to Arctic.

The Worldscale system is a method for pricing oil cargoes
on thousands of trade routes. Each individual voyage’s flat
rate, expressed in dollars a ton, is set once a year. Today’s
level means hire costs on the benchmark route are 40.31 percent
of the nominal Worldscale rate for that voyage.

The Baltic Dirty Tanker Index, a broader measure of oil-
shipping costs that includes vessels smaller than VLCCs, added
1.9 percent to 680, the highest since Oct. 25, according to the
bourse.